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Dollar treads water before US jobs data, Aussie dips

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[TOKYO] The dollar's rally took a pause on Friday as investors awaited monthly US jobs data later in the day and evaluated the impact of a two-day global government bond rout that has lifted US Treasury yields to seven-year highs.

The yield on the benchmark 10-year US Treasury note hit its highest levels since May 2011 after private payrolls data came in stronger than forecast.

The private payroll numbers were seen as boosting the odds that US jobs data for September would also be stronger than expected, likely indicating the tightening cycle by the Federal Reserve will continue.

"The obvious catalyst for the move in the US dollar has been the increase in the US Treasury yields," said Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch in Tokyo.

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Yamada said dollar/yen may test the 115-level if US jobs data turns out to be strong, especially in regards to wage growth.

"Not many people have expected dollar/yen to move materially above 115. It would be interesting once the pair breaks that number. I think positioning is still quite light," he said.

The US dollar was basically flat at 113.93 yen on Friday, after coming off an 11-month high of 114.55 yen the previous session.

A rise above 114.735 would take the greenback to its highest level since mid-March 2017.

The spike in US yields pulled the gap between 10-year benchmarks between the United States and Japan to 304.49 basis points, within reach of an 11-year high of 304.90 basis points reached in mid-May this year.

The yen was helped overnight by a Reuters report that the Bank of Japan will tolerate further increases in super-long yields as long as the increase does not push 10-year yields well above its zero per cent target.

Ten-year U.S. Treasury yields were last at 3.1949 per cent, while the benchmark 10-year JGB yields sat at 0.150 per cent, close to their highest since January 2016.

The dollar index was 0.1 per cent higher on the day at 95.833.

AUSSIE NEAR 32-MONTH TROUGH

The Australian dollar, often viewed as a barometer of risk appetite, slipped 0.2 per cent to US$0.7064, having earlier in the day touched a 32-month low of US$0.7062.

The Aussie, extending losses into a fourth straight session, has now fallen 2.1 per cent this month.

Yukio Ishizuki, senior currency strategist at Daiwa Securities, said he expected the dollar to strengthen against the euro as well as the yen, with the common currency likely slipping back below the psychologically-significant US$1.15 handle.

The euro edged down 0.05 per cent to US$1.1507 after brushing a six-week low of US$1.1463 during the previous day's session.

The single currency ended Thursday with an 0.55 per cent gain against the greenback, paring some losses after slipping six sessions in a row.

The euro is down about 0.8 per cent against the dollar this month.

Euro zone government bond yields rose sharply on Thursday after US economic data bolstered the case for interest rate hikes in the world's largest economy and sent Treasury yields to multi-year peaks.

The pound was 0.1 per cent lower at US$1.3010 following a gain of 0.6 per cent overnight, coming off a 3-1/2 week low of US$1.2925.

REUTERS